Saving More Is More Effective Than Earning More

There’s a lot of ongoing discussions/arguments and rules of thumb in personal finance across a wide variety of finance subjects like investing, saving, and taxes as far as what’s best. And I probably go against the grain in regards to a lot of them.

I’d say to a pretty good spot. I’ve built my Freedom Fund into a $170,000 powerhouse chock-full of equity in fantastic businesses that’s spitting out more than $5,500 in annual dividend income. And these numbers put me more or less on pace for my goal to become financially independent by 40 years old, so I’m happy.

Well, I’m here to possibly diverge once again.

There are basically two camps of people when it comes to living below your means and formulating a plan to save a large amount of your income: There are those that think you’re better off trying to earn more, and those that insist you’ll be better off if you save more.

I honestly don’t think it’s necessary to choose one or the other, as they’re not mutually exclusive. And I think most people on both sides of the line would generally agree with that. If you can simultaneously earn more and save more then that’s the absolute best way to go.

However, if you have to choose between one or the other for any particular reason I would always recommend to save more rather than try to earn more. And I’ll tell you why.

The Math Favors Saving

If you’re looking to maximize your savings rate, the math favors saving more over earning more. Simple as that.

And why wouldn’t you want to save more? I determined early on that I’d need to save at least half of my net income for 12 years straight in order to start from nothing at 28 years old and become financially independent at 40 years old. Mr. Money Mustache came to the conclusion that saving 50% of your net income would put you on pace for financial independence in 17 years, assuming 5% after-inflation returns and withdrawing 4% of your portfolio in (early) retirement. So we’re more or less on the same page in regards to how important saving is and the general timeline for someone to become financially independent.

I view saving at least half of your net income as mandatory if you’re looking to become financially independent at a young age.

But how does the math favor saving?

Let’s take a look!

Let’s say you net $40,000 per year. That’s a pretty strong income, and puts you in the top 1% of the world. So before you decide you need to make more money, keep that in perspective. And let’s say you currently spend $30,000 per year, which means you save $10,000/year – a 25% savings rate. But you’re hardcore! You want to double that and get to a 50% savings rate. You can do this either by saving more, earning more, or a combination of the two. But which of the two choices, if you only had one, is more effective?

Earn $10,000 More Or Save $10,000 More?

So we’ll compare two scenarios using the same amount of money both for income and savings.

You nail a healthy raise at work, and your boss decides to reward you for your loyal servitude…ahem, work…and gives you a net $10,000/year raise.

Bam! You’ve now achieved a 50% saving rate, right? You just added $10,000 to the pile and since you were $10,000 short before you surely got to where you want to be.

Nope.

Assuming expenses do not rise at all with the raise, you’re now netting $50,000 per year and saving $20,000 of it. That’s a savings rate of just 40% now. So you were on pace (using MMM’s numbers) for financial independence in ~32 years with your 25% savings rate before. You’re now on pace for financial bliss in just ~22 years now. That’s an improvement of 10 years. Not bad!

But how does that compare with saving more? Let’s check the second scenario.

You decide to cut out a lot of fat that exists in your monthly budget and you’re able to save $10,000/year as a result. Expense categories in the Big Three like housing, transportation, and food are the first to get cut. These changes yield massive results.

Assuming income doesn’t change, you’re still netting $40,000/year in income but you’re now saving $20,000 of it after the changes. That’s now a 50% savings rate, which is exactly where you wanted to be. Congrats. You are now on pace for FI in just 17 years (again, using MMM’s numbers). That’s an improvement of 15 years!

Do you see how that worked?

Saving Is More Effective

Earning more is wonderful. But if you can’t also save more you’re not actually improving your results as much as if you’re able to save that same amount of money. And that’s because saving more is just more effective than earning more.

And the math works out in favor of the saver because less expenditures means you need less passive income to cover your bills. It should go without saying that the person with $20,000 in annual expenses needs much less investment income to cover their lifestyle than a person spending $30,000 per year.

Earning more may seem like the sexy way to go. And I’m not saying you shouldn’t look to maximize your income at every opportunity. In fact, much of my journey thus far involved not only working 50 hours per week at a car dealership, but also working for 20 hours or more per week here on the blog, eventually turning it into my primary source of income. However, while saving isn’t sexy it will definitely put you in a much better position to retire early and pursue your passions.

The Power Of Frugality

And not only does the math work out for the saver, but the skills learned in pursuit of frugality will serve one well if income is cut or eliminated. There’s no guarantee that your job will be around tomorrow or that the income you’re used to making will be around in the event of an economic downturn.

During the Great Recession, 6.8 million jobs were lost between 2008 and 2009. Relying on a high income to boost your savings rate can have an especially adverse effect on your ability to become financially independent if that income isn’t as secure as you might think it is. And as evidenced by the last decade or so, jobs aren’t all that secure at all. And that’s one big reason why I’m moving from the worker class to the investor class.

But living frugally and the skills gained can’t be taken away from you. They become a permanent part of you. I learned how to live without a car in a city without major public transportation infrastructure. I ate ramen noodles for lunch for a year straight. I rode a 49cc scooter through heavy Florida thunderstorms. I learned what’s possible. I know for sure I can live on less. I not only gained the skills and experience necessary to do so, but the confidence that I know no matter what I can get by. I can adapt. I can change. I can do what’s necessary.

Conclusion

Saving more is just plain more effective than making more. I’m not saying you should turn down more money, but I think due to the effectiveness of saving more and the power of frugality one’s efforts should naturally be more focused on saving.

Saving more creates control. You won’t rely on an employer’s good will or import numbers from China. You’ll instead be relying on your simple ability to live simply.

Not only will you actually decrease your timeline to financial independence much faster by saving more rather than earning more, but you’ll gain invaluable skills along the way that make you flexible and adept. And if you’re able to focus more on the saving side of the budget, any increases in income that come your way become that much more powerful. Cutting the budget down significantly and embracing frugality means additional income can drop right to your bottom line, amplifying your progress and increasing the likelihood of early retirement.

Comments

My income isn’t particularly high, so I definitely focus more on saving. Of course, I would love a raise but as that isn’t happening at the moment, I too focus on saving as much as I can. I think that, as you said, earning more and saving more is the best way to go for independence – it’s just perseverance and hard work that will get you there! As always, great post.

I lean more towards the saving camp as well. I think it is because I believe that a frugal lifestyle has a certain amount of intrinsic value as opposed to just being a means to an end.

“I honestly don’t think it’s necessary to choose one or the other, as they’re not mutually exclusive. And I think most people on both sides of the line would generally agree with that. If you can simultaneously earn more and save more then that’s the absolute best way to go.”

Perfect. It doesn’t have to be either/or, you can do both and should. That last sentence of your above paragraph is how I changed my financial life. I made great money while overseas coupled with crazy low expenses. It allowed me to pay off a little over 50k in debt and save/invest enough so that I was able to buy and renovated a house in cash and work on starting a business in under two years. I was probably one of only a few expats making over 100k and eating ramen noodles!

Let’s combine the two with a slight emphasis on saving/reducing expenses. 🙂

For the vast majority of people, especially those that are just starting towards FI, they need to focus on cutting expenses or saving more. I know I have room to cut some expenses and I’m working on getting them lower. Once you’ve got your expenses under control and down to whatever level you want them at then by all means focus on earning more. If you are at the point where every extra dollar of net income drops straight to your own bottom line then earning more is great.

Great read. I know so many people who live pay check to pay check and think that making more money is the answer to their problems. And many of these people make six figures! Any time I mention cutting back on things like cable or their huge car payment they act horrified.

J – I was wondering – when you start making withdrawals from your brokerage account how are you going to do it? Will you just make a monthly withdrawal from the dividends that have accumulated?

I completely agree that it’s not what how much you make, it’s how much you keep. There are many different variables and circumstances for each person. I believe saving is like the blocking and tackling of FI. Without a disciplined savings regimen, you will have a lot of difficulty reaching FI.

Here is where I will probably receive some friction with my beliefs. I view your income as a by-product of reaching your potential while in the work force. We wouldn’t expect a 15 year old to continue doing 4th grade homework when he is capable of doing so much more. If you have the ability to earn twice what you are making, I feel you should at least for a while go for it! I am trying to reach FI as fast as I can therefore if it means getting on a plane instead of hopping in a car, then point me to the nearest airport.

As always I really appreciate your views and thank you for the many enlightening and educational posts you produce.

Recently quitting the job and moving across the country might allow you to put this idea into practice. This fresh start gives you a chance to see how low you can get your expenses. I’m curious to see what savings rate you’ll be able to maintain in the new post-job lifestyle.

I agree with you in principle, but I think some of your comparisons are little off. Going from $30k to $20k in spending is a 33% reduction in spending. Going from $40k to $50k income is only an increase of 25%. The point is earning $1 more or saving $1 more isn’t the same difficulty depending on where you are at to start. If I’m spending 100% of my $40k income, it’s much easier to cut off the first $10k to get to $30k then it is to cut the $10k off to go from $30k to $20k.

It’s a balancing act we must all determine. The goal is to at least make the decision consciously.

I think I actually disagree slightly here. Assuming you already have achieved a decent level of frugality and cut down your bills, to achieve a higher savings rate you’re going to need to sacrifice on quality of life. I personally have little issue with minimizing my personal expenses and living like a monk, but when you have a family you pass those sacrifices on to other people that are less willing to accept them.

By earning more, you achieve a higher savings rate without any sacrifice. This of course assumes you’ve already cut out the frivolous luxuries and minimized all of you obligatory bills.

Totally agree that saving is more effective than earning more. As long as I don’t have to sacrifice a certain standard of living, I’m more than willing to cut my expenses. A 50% savings rate is indeed mandatory if you want to reach financial independence at a young age, so that is my monthly goal for the foreseeable future.

Saving more is also a whole lot easier than earning more, at least where I live. Belgium has a very progressive tax system so that I have to earn €2 gross more for every €1 extra after taxes. You can see why it would be difficult to raise my after taxes income significantly and bump up my savings rate.

And I plain like being in control, which I am when I’m (not) spending my money, but I’m not when I depend on a high monthly paycheck from a generous employer.

I agree with you. Frugality is easy for a bachelor eating ramen noodles and living in a studio apartment. It becomes much harder for a head of a household with a kid and a non-working spouse to support.

DM,

Any advice for us middle-age parents who don’t have the option of moving to a cheaper locale due to family location? I’ve already ditched the car and cut back in the food budget and could use some new ideas.

Another very enjoyable post. We are doing both living frugal while increasing our income. The increased income is only for saving not lifestyle inflation. Being frugal has allowed us to enjoy fresh fruit and veggies from the garden and taking care of our home ourselves. Being able to learn new skills is so important verses calling someone for every little thing.

And i’m not an innocent. I went to OSU (!!!) and moved to the northeast and started earning a nice fat salary and life took off from there. Talk about an eye opener after a divorce put the money situation in perspective.

Depending on your position/education/job in early years it is a lot easier to increase earnings. I’ve seen mine double close to triple from 24 to 32. Unfortunately that lifestyle was NOT a good idea. Salaries tend to level out, some sooner than others… but its all relative.

I’ve been in a battle the last 5 years to pare expenses down. And you know what? Saving is like crack. The more you do it the more you want to do it. I’ve increased my savings by the same amount my salary increased over the preceding years. I wish i would have know then what i know now. And Mr Compound Interest would have taken care of the rest.

With a family, kids, home, etc. I would have to agree with Kevin and Joe. Once cut your spending to the bare minimum, it is very difficult to increase your savings rate without some major sacrifice or change to your current lifestyle.

I think the key factor here is really ones lifestyle choice…single vs. married, homeowner vs. renter, kids vs. no kids, etc. If one is willing to choose the cheaper option, I suppose you would net larger gains in your savings rate.

For some, the cheaper option is simply not one they are will to make. In those instances, provided they’ve cut out everything else, I think increasing ones income is not only more effective but the only option. Just my opinion. 🙂

I’d say it depends what’s going on in your life and who you are. For most people who don’t have jobs, for example, earning more would be their favorite choice. (I’ve heard of at least one guy, though, who would rather find free ways to do everything than to ever touch money–so there’s an exception there.)

Also, some people would rather spend some of their spare time working on a side business than using certain frugality skills, though there are certainly frugality skills for every personality type.

One could also argue that the same way your high-paying job could disappear, your nice investments could disappear, too.

To me, the scariest thing about the earning-more approach is that it’s so easy to spend more as well. Sometimes it’s just general lifestyle inflation because you feel richer. But sometimes you really do need more expensive clothes or make-up or you have to network at restaurants, etc. And sometimes it takes money to handle extra stress.

My favorite argument for saving is that any time you figure out a good way to permanently reduce your spending, you’re not only able to save more money, but you also don’t need as much to become financially independent.

My second favorite argument for saving is that figuring out my own way to save money is generally a lot more fun than doing things some boss (or client) figures out for me to do. Plus there are OFTEN side benefits. Like if you learn to cook–you can gradually make your food yummier and healthier. Basically, any time you make something yourself, you’re getting something that is custom made for you.

Absolutely. If you can earn more while simultaneously cutting expenses, that’s the best way to go. However, our attention, time, and energy are all finite resources. So if one has to focus on one more than the other due to certain individual circumstances I would always recommend to save more. Once you’ve got your expenses under control, all additional income just drops right down to the bottom line. Can’t beat that! 🙂

I’m with you all the way. Saving more is generally within your control. Earning more, however, is not always the same. For instance, at my old job down at the dealership my pay was based on commission. Selling more earned more, but that cuts both ways. When we were slow, my income suffered. Likewise, when they brought on a third guy I knew the writing was on the wall. Splitting a pie between three eaters instead of two without dramatically expanding the size of the pie leaves all a little hungry.

I’m with you. If you can do both at the same time, that’s the way to go. And I kind of experienced that myself. However, we all have finite amounts of time, energy, and attention. So I found myself leaning more toward saving and gaining skills there. Had I not done that, the more income might have been pissed away. Which obviously would mean I might not be here today in this same form. So I’m glad I did it that way.

If you look at your wealth like a bucket with a hole (expenses) in the bottom and your income as water, you certainly want to spend more time plugging that hole as much as possible before increasing the flow of water. 🙂

Good for you for doing both, though. That’s awesome that you were able to cut expenses so dramatically while earning a high income. That is what got you to where you’re at today!

Absolutely. Focusing more on increasing income before figuring out how to cut expenses means that extra income will most likely be spent away. We can see this across our society. Most people focus on earning more. More money must mean more happiness, right? Wrong. More money must mean more wealth, right? Wrong. It amazes me how after all these studies, books, and case studies that simple truths still get ignored.

Dropping that extra income straight to the bottom line is what you want to do. And the only way to do that is to focus first on cutting expenses and increasing your skills in frugality. 🙂

It’s amazing to me. How people can still keep following the same logic over and over again when it’s been proven false is just nuts. Of course, I was a victim of that false logic early in my life, mainly due to following others. People become sheeple, which is unfortunate. Gotta march to the beat of your own drum, and find your own happiness.

As far as your question goes, that’s correct. I’ll simply withdraw dividends on a monthly basis. So June’s dividends will be withdrawn at the end of the month to cover July’s expenses, so on and so forth. There will be spreads between dividend income and expenses, and that’s where budgeting comes in handy. 🙂

You are the best judge of what you can cut. You can only cut what you’re spending, so look at what you’re spending. Then think about why you’re spending like that. Then think if there are other ways to achieve the same goals more inexpensively. (Sometimes when you think of alternatives, you realize there are additional reasons you’re doing things that aren’t addressed by the alternatives, so the whole process is educational.)

Sometimes we are just ignorant about cheaper possibilities, too. So google “saving money on ____” and see if you learn something new. “How to fix ___” is another good one.

Also, sometimes we know of cheaper ways to do things, but we don’t want to do those things. Look at why you don’t want to do those things. Then find out if those reasons are based on truth. For example are thrift stores really gross or embarrassing? Is that school in the cheaper part of town really worse/would home schooling really be a disaster? Would people really treat you worse if you wore glasses instead of contacts or no make-up (you can claim some sort of reaction or medical issue to have an excuse to switch back later).

Also, remember there are advantages for families as well as disadvantages: You can make a big batch of something and not be stuck eating it all week–this is especially great when the experiment doesn’t turn out well! You can all be housemates without worrying about many of the housemate issues that come up between strangers. You have other people who can help you think of ideas and help you implement them. Actually, you’re a team in many ways–people can do more of the jobs they like more and less of the jobs they like less (single people have to do all the jobs). And you get way fewer taxes taken out of your paycheck than a single guy would.

Unfortunately, our educational system fails miserably when it comes to educating our kids in basic personal finance. Our kids are only getting one side of the saving vs. earnings debate. We educate our kids to have skills that are marketable, so they can be productive and produce income, but very little is discussed about “How” to save, how to create a budget and why a frugal lifestyle is equally important as having marketable skills.

BTW, I just transferred $1300 into my brokerage account and about to pull the trigger on 100 shares of ARCP thanks to your past research. I’ve spent several months doing my on homework on this REIT and agree with your conclusions.

Definitely. Without keeping most of what you keep it doesn’t matter how much you make. There’s been many cases of people out there making hundreds of thousands of dollars per year and they’re still broke. Lottery winners. Doctors. Lawyers. They could make millions and it would still be spent. Focusing on saving first means your increased income will then go to generating real, sustainable wealth. This is just basic stuff, but a lot of people miss it.

I’m with you on making more, though. Once you have your spending under control you should then definitely focus on making more money. Which is something that shouldn’t be too hard for someone enterprising enough. Generally speaking, once I mastered frugality and got my spending under strict control it was all on auto pilot. But not focusing on that first and learning what I learned means the extra income I would have made would not have gone to savings and investments. And I wouldn’t be where I am today.

I agree with the person above, its “Married Vs Single”, I’ve been both, a man doesn’t know pain and poverty until he marries and has children, whereas a single man is very much the Captain of his own ship called Destiny, in my single years I did both I increased my earnings by working 6 to 7 days per week and also lived cheap (Mostly at work 🙂 )

But when your married with kids the saving choice is taken away from you really by the never ending and always changing demands of family life.

I’m curious to see how the savings rate looks as well. Of course, as I was noting in an above comment, my frugality is already pretty well mastered now. My savings rate from here will largely be a function of how much revenue I can generate from my writing. Which obviously remains to be seen. I’m optimistic, though!

Well, you can put in whatever numbers you like. But dollar-for-dollar you’re better off saving more than earning more. And I didn’t even take taxes into account, by circumventing them using net numbers. It’s an even more powerful argument when taking taxes into account. I simply didn’t want to add to the math and complicate the illustration.

And I agree it’s more difficult to go from saving 25% to 50%. However, if retiring early and saving gobs of your income were so easy everyone would be doing it. If you want it, you’ll figure out what’s really necessary and what’s not. If there’s anything my writing tries to show it’s that the necessary is often less than you might think.

But there’s definitely a balancing act. And spending consciously is very important. For instance, I recently went to a Detroit Tigers game for the 4th. It certainly wasn’t a necessity, but I felt the value was there. Deciphering value in your life is what makes this difficult, and that’s where the work lies.

It is definitely a combination of both:
1) Saving more is “fully” under our control and hence we can achieve it more easily. The only caveat is when you are a supporting a family (like me), each family member has to fully commit to saving aggressively which is not always easy.
2) Earning more definitely depends on some external factors unlike savings which can be controlled internally within the household. If you are in a business or working a regular job and/or doing side jobs, there are always external factors that affect how much you can earn and most of those factors are beyond our control.

On the flipside, one can reduce expenses only so much. There are lot of households that are earning minimum wages and are finding it difficult to make ends meet. From their perspective, saving more is not an option and the only way out is by looking to increase the earnings.

That’s a great point there. But we all have different meanings on what a high quality of life entails. For some going without a 4,000 square foot is sacrificing quality of life. For others, they couldn’t imagine even owning a car. We’re all different.

But assuming you’re already mastering frugality then you’re right in that you’ll be better off earning more. I wasn’t making a case that you shouldn’t try to earn more once you’ve already gotten your expenses down to an appropriate level. But focusing on the savings FIRST is what I was recommending, because otherwise extra income will just be wasted away. We can see this all across the country. If one doesn’t focus on the savings and frugality first, then maintaining a high savings rate will likely never be achieved. And as the math points out, it’s more effective that way anyhow.

But absolutely. Once you’ve already cut out the superfluous, then extra income is all gravy. And gravy tastes great! 🙂

That’s a great point there in regards to taxes. As I was pointing out in a previous comment, I didn’t include taxes here simply for the sake of keeping the illustration simple. So I purposely used net numbers. Of course, including taxes on a dollar-for-dollar basis means the argument for saving more is that much more powerful.

And I’m with you in regards to being in control. I always felt a bit lost before when I was making decent money but spending most of it. Now that I have complete control over the outflow, managing the inflow becomes much more exciting and effective.

You always give me so much to think about. While I’m in debt payoff mode, not so much saving mode, I keep telling myself “if only we earned more”. Now I feel a little silly telling myself that! If we could cut back just a little more, we’d pay off our debts sooner. And that’s really nice, but what’s even nicer is lowering our required yearly income so we can retire sooner. Simple concept that I’ve clearly been overlooking.

Well, I don’t necessarily agree with that. Really depends on your situation and what you’re willing to do. If saving 50% or more of your net income were easy everyone would be doing it. It’s hard. Sacrifices must be made. But having a family doesn’t necessarily impede your progress all that much. Pete over at MMM retired at 30. With a wife and a kid. And I’ve run into others in my years of doing this in similar situations.

That being said, it sounds like you’ve already cut back quite a bit. I really can’t give specific advice as I know nothing about your situation. But ditching a car and cutting back on food means you’re likely already saving a good chunk of your income. Beyond that, housing is probably the next major expense that calls for attention. The Pareto Principle comes to mind here, as 80% of your expenses will likely occur through 20% of your budget categories. And typically these are housing, transportation, and food. If you’ve already nixed out the other two as much as you can, then housing is next. You said you can’t move to a cheaper locale, but can you move to a cheaper abode? I moved down in Florida to save quite a bit, but only moved a mile down the road. Sometimes you gotta do what you gotta do. It sucked moving, and I liked where we lived. But I needed to save that money.

That’s awesome. You’ve not only saved money, but you’ve gained skills. And you also enjoyed the process and end result that much more. I think your experience can be replicated across your life in other areas like home improvement, car repair, and hobbies. The more you can do for yourself, the better. That being said, I have a lot of work to do in this area. I think cooking is probably the first area I need to conquer at some point. I just really hate it, but maybe I’ll train myself to like it at some point. We’ll see.

Well, I wasn’t inferring zero savings in the above post. But zero savings would likely imply lifestyle inflation at a $40,000/year income. That puts you in the top 1% of the world, so more income probably isn’t your answer. Plugging the hole in the bottom of the bucket should be your first focus at that point.

And savings is kind of like crack. I know when I first started to save, I felt more in control with every subsequent change to my budget. And so success begets success. Each subsequent increase in your savings becomes incrementally more powerful as it drops down into investments, which then take off due to compounding. And that success means you want more of it. It’s really a wonderful cycle. 🙂

I agree. When you’re talking about cutting expenses down “to the bare minimum” then you’ve already focused on saving. That’s exactly what I was advocating. Once you have your expenses down to a realistic minimum, then at that point you should focus on making more money, if possible.

My point was rather that focusing on making more money isn’t only less effective, but likely wasteful if you don’t already have your expenses under control. And you can see this across the country as people who make hundreds of thousands of dollars still have no real wealth.

So it’s focusing on saving first. It’s more effective, and the extra income you can or will make down the road will drop right down to your bottom line. That increases the power of your income dramatically when it’s not being wasted away.

Well, as someone who’s moving from the working class to the investor class I truly believe the grass is greener. Of course, investments could “disappear”. But we’d be looking at a major economic breakdown. At that point, stocks are worth a lot less than food, water, and some personal defense system. That being said, I think the odds of that are extremely low. And certainly much lower than losing your job. And we can see that in the numbers as nuclear war hasn’t broke out, yet the unemployment rate is still quite high.

And saving money is fun. I think a lot of the fun is just in exploring you and your capabilities. And then you gain control. And that control is really empowering. I can’t tell you how much more fun I had riding my scooter around town compared to driving a car. Or eating small portions of food for lunch when everyone else was stuffing their face. I was healthier, wealthier, and in control. How is that not more fun??

I agree. Not only does our educational system utterly fail in this arena, but it sometimes actually harms us. For instance, I remember when I was a freshman in college there were credit card offers everywhere, all over campus. And there were little tables everywhere with representatives. I find that pretty egregious, as I signed up with no idea as to what I was getting into. It’s a shame. And this is at a prominent university.

Glad to have you on board with ARCP! I think it will do well here. I’ve even thought about increasing my position, but I don’t want to go too heavy on REITs. The valuation spread between it and O is just crazy. O certainly deserves a premium due to its historical operational quality, but I think that spread is a bit much. May ARCP serve us well. 🙂

I can’t speak from experience, but I’ve run into married couples who don’t save and those who put me to shame. I don’t think it’s really as simple as “married = less savings, single = more savings” Pete over at Mr. Money Mustache who was married with a child saved much more than me, and retired at 30. Of course, he and his wife made a lot more than me. So there’s a lot more to it then your marital status.

Personally, I would only marry someone if we already had an understanding about money, saving, finances, retirement, and lifestyle. Not doing this would only be bad decision making on my part, and I would have to suffer the consequences. But the blame would be on me, not marriage. Marriage is a legal certificate, recognizing a union between two people. It has nothing to do with your savings rate.

But as someone who was with a partner for almost five years and now being single I see benefits and drawbacks to both sides of the coin. It’s easier to save in certain categories because you can split things down the middle. So housing and utilities can be much cheaper as a couple. In addition, you can buy food in bulk and cook bigger meals and see a cheaper cost per meal. Certain categories, on the other hand, can go up. Transportation might go up if you both need a car. Entertainment might go up as well as it’s easier to go out as a couple than it is as someone who’s single.

Children complicate things a bit more, but I don’t necessarily believe it’s really all that simple there either. I personally decided a long time ago to not have children. But if I were to have children I’d be aggressively looking for ways to minimize costs, including using hand-me-downs, and trying to lean on family for babysitting duties. Day care can be a killer.

But I do agree with you that being single means you’re the captain of your own ship, only because you’re alone and you’re doing all the steering. Being in a relationship involves a lot of compromises. But I think it’s important to establish financial boundaries right from the outset.

I agree. Once you have your expenses cut down to a realistic minimum then you must concentrate on earning more. The point was that saving more is more effective, and should be one’s primary focus before trying to earn more. Earning more money without controlling spending is like flushing money down the toilet. Once you’ve mastered frugality and you’ve got expenses on cruise control then you’ll have to figure out how to maximize your earnings potential.

And I agree with you in regards to control. That’s one reason I find frugality so attractive. Your spending is largely within your control, whereas your control over your income is somewhat limited.

I agree it is best to both maximize earning while limiting spending, but I also agree that one is far more effective than the other. I would also argue that they are (or should be) completely unrelated. At work I do all I can to maximize what I earn. At home my wife and I do all we can to control and reduce our expenses. We do not perform one of these activities at the expense of the other.

A very simple way to look at it is this: if you spend a dollar it is gone forever once spent (theoretically in return for whatever good or service you used it on). If you instead cut your expenses by a dollar and invest it, not only do you keep the original $1, but it generates roughly 4 cents per year forever. As DM shows in his posts, those 4 cents a year start to add up incredibly fast. If spending that dollar is also a regular thing, you now need to increase your earning twofold to a) pay for it now and b) maintain your current saving rate that includes this new expense.

When I make budget and purchase decisions, I try to look at this concept as well. “Is spending this $100 really worth missing out on a free $4 every year forever?”. I am amazed how many little decisions like these are available in life that constantly erode our ability to earn passive income. (I’m looking at you, cable TV!!!!)

Well, earning more is certainly wonderful. Nothing wrong with more money. 🙂

But if you haven’t already maximized your savings then you’re really doing yourself a disservice by not focusing on that first and foremost. Once you’ve got the spending under complete control – you’ll know when – then you can come up with creative ways to increase income. There’s a lot of money out there, and it’s not going anywhere. But I would recommend getting your spending under control first. The math proves it to be true, and the extra income will be that much more powerful in helping you achieve your goals.

I think you make an excellent point that you need to focus on savings before making more money. I know plenty of people who make a lot of money, but because they never bothered to teach themselves discipline and frugality having a high income can be lost on them because they let their lifestyle rise to meet the level of their income. You really need the savings skills to handle a higher income IMO. Otherwise you may make a lot of money and still be broke- and you’ll DEFINITELY never reach FI at an early age!!

I agree that in theory they should be unrelated. But I don’t necessarily believe this bears out in reality. For instance, we all have a finite amount of time, energy, and resources. And the more energy you spend at work kissing up to the boss and busting your butt may be less energy you have at home to save money and cut back. You can see this when people plop their feet up at home after a long day and and order in delivery. Not saying that’s a bad thing, but I think you can only “go get ‘em” so much before you’re just plain worn out. In addition, spending time at home tinkering with a side hustle may draw your attention away from saving as much as you can. I’m not saying that doing both simultaneously isn’t possible, but that focusing on both 100% might be difficult or even impossible.

But I agree 100% with finding value in life. One should always aim to spend consciously. There’s never one single dollar that leaves my pocket without some thought behind it. I know exactly where all of my money goes, and I find appropriate value almost every time. I’m not saying that’s always the case, but mostly the case. I certainly splurge sometimes without the appropriate value, and I think I find that most often with food. Sometimes I eat a really great meal, and afterwards I question what I spent. Other times, I know the value is 100% there. Just really depends. But it’s all about constantly questioning, learning, evaluating, and valuing.

Absolutely! As I was pointing out in an earlier comment, the analogy of the bucket rings true. Your wealth is a bucket, your expenses are the hole in the bottom of the bucket, and your income is the inflow of water. Cranking up the spigot full blast and making $500k/year means nothing if the hole at the bottom is causing all the water to leak out. Only by plugging the hole will you see the water level rise and your wealth build. That’s why I already have more wealth built up than other people I know making three times what I make. Controlling expenses is extremely simple, but also extremely powerful.

Definitely more fun! Some of my more-fun things are:
* reading while commuting on the bus instead of driving
* getting to wear my favorite clothes longer by mending them and by air-drying them instead of having to look for more
* having baked goods made with whole-wheat pastry flour or white whole wheat flour (both taste like white flour to me but have fiber because they are whole wheat)
* having many recipes that let me eat my favorites without having to hope that some restaurant or other business stays in business
* getting to rub my eyes when they itch instead of wearing mascara
* never having to worry that the hair stylist will do a good job because I just wear my hair long and cut it myself
* making a quilt out favorite fabrics from clothes that are too worn out in some spots but not others
Let’s face it, even grating soap to make cheap laundry detergent (while singing along to the music at my house) is more fun than many of my cubicle duties plus I get to work some of my arm muscles.

I started a company then was brought into work full time at a new company. Made good money and bought a huge house and lived there for a few years. Wasn’t any happier, actually was more miserable. Went to build houses in Guatemala for two weeks. I saw how happy they were with their 150 square foot houses and minimalistic lifestyle.

When I got back from my trip I sold the huge house and bought another one almost 1/3 the size. I also cut my cable. Best decision I ever made. I still work at the same job and no one knows I live the life of a popper. I’m much happier living the simple life. Cutting costs is the thing to do. Cars and a house are huge expenses. Cutting cable tv is a no brainer as well. I have seen over the years the best investment a person can make is in themselves, so I say that is phase one. I believe phase two is budgeting/frugalness. While becoming frugal work your way up to the money! Great article.

PS: I had kids and a wife as well. They weren’t happy at first with my decision, but now they see the light. We never had any visitors at the large house. In the smaller house we have people swing by every week. The entire family is happier now being more minimalistic. It’s quality of life not quantity in what you have. Next step is early retirement!

Hi Jason,
thanks for another interesting read.
I would like to give you three answers:
1. Agreed that saving is very effective and can be done by everybody
2. The most power you get by combining more savings and a higher income
3. what is most important for me: by saving more you are reducing your monthly needed budget. This makes you able to reach financial independence far earlier. Example: if you only need 1.5k dollars a month it is much more easy than if you need 2.5k dollars.
Could I make myself clear?
Have a good week.
Best regards from Germany – we are still celebrating the soccer world championship
rickrack

I totally agree on saving more. It’s amazing how small day to day expenses add up into a big chunk of money. I have one client, who is finally getting better on his spending habits. It took me a while to show him month after month how he is wasting all his money. In the beginning he would get mad at me for adding it up and showing over and over again but then finally he got it… He is still slipping from time to time but at least trying to get better.

The best way I try to explain FI to someone who doesn’t understand is to ask: “Who is more wealthy?” Person A who makes 100k and spends 70k or Person B who makes 60k and spends 30k. Both are saving 30k but almost everyone would say Person A. They don’t realize Person A would need to drastically reduce spending (or get a 40k pay raise!) to reach the 50% threshold and retire early while Person B is already on the fast track.

Great quote there. Sounds like something coming out of my own mouth. Couldn’t have said it better myself!

Your story of cutting your house way down reminds me of Tom Shadyac’s story a little bit. I’d say he was definitely pretty extreme, but it is inspiring to see people who could have way more live with much less. I sometimes find stuff isolates us, and his journey was basically about that.

Absolutely. I think most people would choose Person A right off the bat, when in fact Person B is making much more progress toward wealth and financial independence. Now, Person A has a lot more potential due to the higher income, but only if they can get the spending under control. They’d have to cut $20k from their budget to even be on the same level with Person B, which is significant. That’s a great illustration to prove how powerful saving really is.

I agree that boosting the savings rate is key, which is usually done by reducing expenses. I still need to do some experiments to reduce expenses which means I need to do some experimenting in this area.

Experimenting is half the fun. I think it’s great to know exactly where your boundaries lie and what constitutes a good quality of life. I realized that I kept cutting and cutting and didn’t really experience the dramatic drop in quality of life that I thought I would. I sometimes hold back more than I’d like when it comes to food, though. If I were a billionaire I’d probably still live in a small apartment/condo and drive my Toyota, but damn it I’d be eating awesome food every day!

I agree that it all starts with frugality, that is the cornerstone to early FI. If you can be frugal then it’s all gravy after that; you can save aggresively and/or strive to make more money. The former is more important, but the latter won’t hurt either. It’s best to save as much as possible first before killing yourself trying to earn more.

My wife and I certainly have made a lot of money, but most of that was saved thanks to our relatively frugal lives. We’ve been able to get away with not being as frugal as you, but very soon we’ll have to fully embrace frugality. We are confident we can flex our frugal muscles, that is why we’ll be able to pull the plug so soon.

When we started our journey four years ago, we thought we would need upwards of 35K/year in passive income in order to pull the plug with confidence. Thanks to ERE, MMM, and you, we’ve realized that we are quite capable of living a frugal yet satisfying life. We don’t need a house in the suburbs of LA to be happy. We’d rather rent a cheap apartment somewhere in the PNW than keep working.

That’s awesome. Simply by adapting a simple life and embracing frugality you’ve subtracted years of working, and expanded your horizons beyond your imagination. How awesome is that? The fact that frugality can actually improve your life at the margins means you just nailed a win-win, my friend. 🙂

You can have the math and the fragility/roman noodles, no fun, no style, no travel, cheap apartments. Zzzzzzzzzzzz!

I’ll rep it out with my high comish six figure sales career. (20-hours a week). I love what I do.
.
Chilling at my Buckhead (Atlanta) high-rise condo by the pool, eating out out on the town, dateing hot women, riding Uber’s to and from, keep a boat up at lake Lanier, travel the world.

I don’t begrudge you for making a ton of money. And if you can do it while also loving what you do then that’s fantastic. But you’re in rarefied company. You make it sound like we can all work 20 hours per week, own a high-rise condo, and a boat out back. Well, for those of us who haven’t eaten their Lucky Charms choices and sacrifices must be made.

“Who cares what percentage you save? 50% of a crap income is only half of a crap income. Big deal!”

I think you missed the entire point of the article, and, frankly, the entire point of everything I write about. It’s not about what you make; it’s what you save. Saving 50% of the crappiest income in the world still puts you on pace for financial independence in about 15 years. So you can make a crappy income starting out at 25 years old, never improve it, save 50%, and still become FI at 40. That’s more than what a lot of people can claim. Whether or not that will make you happy or not really depends on how you derive happiness and how you define your life. Some of us prefer time to money. Some do not.

I understand your comment was a little tongue-in-cheek, but next time try to be at least close. $40k is almost four times the federal poverty rate for one person.

I think we’re just on totally different planets, my friend. I’ve already realized that more money does not buy more happiness. I don’t need a high-rise condo, a boat, or anything else. In fact, the last thing I could possibly want in this entire world is a boat to worry about and maintain.

great point here! Saving more is definitely the way to go. But earning more can help a lot too. Doing both is definitely the best thing to do though.

I have increased my salary from 26,000$ in 2006 to 89,000$ in 2013. I’m on my way to earn 100k within 3 years due to the recent promotion I got. This will definitely help me achieve my goals while being able to take advantage of life. Because, in the end, we never know when we’re gonna die, so it’s nice to be able to afford some luxury and comfort and also afford to build financial independance at the same time.

But, I never take this salary as granted. I know that tomorrow it could all end. They could fire me and I would have to start over elsewhere. That is why I use the leverage this great salary gives me to save as much as possible while it’s possible.

Also, I can tell you that to earn more, I had to sacrifice a lot of things and work like crazy. I had more than 12 different jobs over the last 10 years. I try to get a promotion per 12-18 months… So I always have to learn new things, meet new colleagues… It’s pretty stressful and I’m getting tired of it… It probably costed me one or two relationships with great girls too…

I recently got another promotion and I plan to sit there for a while and rest a little…

Also, it’s good to know that the more you want to earn, the more the competition is fierce and the less you can have friends at your workplace… I used to eat with colleagues/friends everyday, go out with them, visit them outside work… but now that I’m a boss… well, it’s more difficult…

Also, taxes here are progressive (canada) so even though I more than tripled my salary, my net income only doubled… The government and society is against you… In this society it is more efficient to be poor or rich… not average in regards to income taxes.

On another subject, I made the choice a couple of years ago to buy a house… an old house. I enjoy living there, having my own piece of land and all… But, it definitely sucks a lot of my net income on every paycheck to pay the mortgage but also to renovate it. At first, I thought I made a mistake. Rents were 450$-500$ per months… My mortgage and tax payments were at 1100$ per months. But now, 6 years later, a decent appartment costs more than 900$ per month… and my mortgage is still 1100$/months… Rents are indexed with inflation. My mortgage is not and one day, it’ll be fully paid.

I don’t think I’m going to make money owning a house. It’s an expense, not an investment. But, I enjoy living there. I want to raise my kids there, and except if I would live with other people to share the rent (which I wouldn’t enjoy), I don’t think it’s going to cost me more than being a tenant over my lifetime because I bought a reasonnable house for 180k.

Also, I plan on fully refunding my mortgage within 7 years. And this, only a bigger salary can permit it.

When it will be fully paid, my housing spendings will be very low for the rest of my life (heating, taxes, maintenance) and this will definitely put me in a good position for early retirement.

The only difference is that I was lucky to find a job in sales (my career passion) and that has paid dividends.

So I can live on the ritz a little, and still prosper and save.

You soon will prosper too now that you are free. You are soon to pass trough the eye of the needle with your writing.

No more doing pull up’s in your sisters basement for you bro! haha. You are going to make it big before you know it.

You take care too.

-Scott

PS: V was your best invest yet. It’s may largest holding by a mile. I love yield too, but sometimes you just have to do what’s right. V is the best investment opportunity of our generation. Only took you 4-years! 😉

Great article! I’m trying to earn and save more, hoping to have my cake and eat it to. But who knows, sometimes I wonder if it’s worth the trouble with the extra work. I have an interview for a promotion this Friday so we shall see.

I’ve noticed first hand the difference from focusing on saving over income in the last 6 months. My savings rate was 38% in 2013, and I thought that was really high before reading this blog. Since March this year, I’ve average 75% saving rate and I earn under £30k a year in the UK. I sold my car, got rid of Premium TV, and have made numerous cut backs on spending……. and I couldn’t be happier!

Scotts comment…”$15k a year is not living, it’s surviving” ……..Wow. Is that so?! I’m living on around £9k a year in the UK and it feels a little bit more than surviving to me I have to say. Buying boats and living in posh condos doesn’t sound in anyway appealing to me, but we’ll have to agree to disagree on that one.

DM – Thank you again for helping me turn my life around by posting articles like this. I’m heading for FI much sooner down to this Blog.

Regarding Scott’s comment, I respectfully disagree. Obviously if you have a huge income, then it becomes a lot easier to save enough to achieve financial independence, but that path is not really accessible to everyone.. The whole point of this blog is to describe how you can achieve financial independence even if you have a modest income and that’s the impressive part of this journey. Scott’s claim that a salary of 40k is just above poverty line is just a testament of how effective saving is, considering the portfolio you built on such an income. Of course, we all want to achieve a higher income, as it facilitates the task of saving and re-investing a lot, but the focal point here is that, it helps but you don’t NEED that, what you need is to save a big chunk of your income, even if it’s small.

Sure, 15k per year is not enough to have a high-rise condo or a boat, but those are things that people on a modest income don’t have while working anyway, why would it make sense to want them after they are independent? The goal here is essentially to buy freedom in terms of time, and for those who earn less, it also takes less to “buy” this freedom.

I keep reminding myself that all this frugal living will serve us well in retirement. You’ve reminded me again of why this is good. Makes the journey more palatable. Thanks for that. Great article, as always.

I’ve got my saving rate up to 90%. Took 7 years of cutting. Plan to retire in my late 30s, move to Thailand and live the easy life. Need about $1500 a month to live pretty good in Thailand I’m shooting for $2500 just in case. Will probably work online or take fixed contract jobs once in a while so I can keep my DGI rolling down the snow hill.

Cellphone, gone.
Cable, gone.
Shop at walmart
Shop at the cheap crowded grocery store (even though its nasty)
Coupons (ugh)
Shop every insurance policy you have to atleast 3 places and save a ton of money
Get a roomate / rent a room if possible
Put everything on a points credit card and pay it off (i probably bring in 500$ a year doing this)
Go through every single line item on your budget and justify it
If you have kids look into BJs or Costco (my parents saved a ton of money with 4 of us buying bulk)
The crockpot and a cheap deep freezer is your friend!! (Buy in bulk!)
Replace your old lightbulbs with appropriately cheap new ones (holy crap they were killing a ton of energy)
I went around and kill-a-watted every appliance in my house, that computer was sucking 400 watts! turn it off
Programmable thermostat
Do holiday shopping after the holiday for the next year (works with any holiday, dont wait till last minute)
Second hand clothes or clothes from walmart / target are just dandy.
Brownbag your lunch
Cut your own hair (buzzers are cheap)
Cheap razors work too 🙂
Spend an afternoon airsealing your home and get a home energy inspection (they come in with a heat camera, ect)

I love walking through the parking lot where i work. Lexus, Mercedes, Acura MDX, BMW, Cadillac Escalde, Lincoln Navigator… then you have about 30% who are frugal driving reasonably old beaters. For the same function (getting from one place to another) that means i’m up the 50k each of those luxury ones cost. And of course i never see an “old” luxury car in the lot. I look at it like an instant salary increase 🙂

I completely agree with you DM. I watched lifestyle inflation growing up. My parents didn’t have a lot when i was born. But dad did well for himself, very well, over the 18 years i lived there. Unfortunately he tends to spend money like piss through a boot. Saves a good deal too but his spending is just obscene sometimes. I picked up some really bad habits that i’ve been correcting. Let’s just say I pray for my youngest siblings who came along later in my parents lives. The sense of entitlement is mind boggling!

That’s great stuff there. A high income can be a powerful tool in the hands of a wise investor/saver. It’s great that you recognize the opportunity and take advantage of it. Congrats on being able to increase you income so prodigiously in such a short period of time! I never made that much, and I doubt I would have ever made anything near that in the auto industry.

Sounds like you’re happy with your home purchase. I personally don’t think I’ll ever own a home, and that’s simply a lifestyle decision on my part. I have no desire to fix things, clean gutters, cut the grass, etc. But owning a home is a nice hedge against rising rents. I think there’s pros and cons to both sides of the coin, but it sounds like you’re very happy with your decision and that’s all that matters! 🙂

Congrats on your success thus far. Sounds like you’re on the fast track!

Good luck! Hope you nail the interview. More money means more capital for investments. I was always of the opinion that if I’m going to be at work for X hours per day, I may as well make as much as I can. Of course, I always tried to maximize the income to work ratio, though. I was already exhausted with my normal work load.

I didn’t articulate my point well enough, but you did. Your comment is dead on. A high income is wonderful, but not always possible for all of us. But the good thing is that it’s not necessary. A cornerstone of my strategy is making more out of less and attempting to achieve financial independence on a very modest income. And I’m showing others that it’s possible. You don’t need to make six figures to achieve financial freedom, but it certainly won’t hurt either. It’s really about finding value in your life and making conscious decisions with your money.

That’s awesome right there. Thailand still remains the #1 spot I want to visit abroad. I’d love to scope it out as a possible early retirement spot, but I also know how much I’d miss my family if I were to live over there. And a couple of flights per year back to the US increases the budget pretty dramatically. But I still have dreams of an early retirement in Thailand.

I know firsthand after working at luxury car dealerships how much of a financial black hole these cars are. They are just so incredibly expensive it boggles my mind.

I personally hate even having my Toyota. I know I got a hell of a steal on it, and it’s nice being able to jet across town at will. But I sometimes dream of going back to a bus/bike combo. No matter how cheap, cars are just a drain on the wallet.

I think you’re on to something, the minimum threshold for “quality of life” can be very different from person to person. For instance, my family can live comfortably in any space between 1000 and 1500 sq. feet without feeling cramped. Anything above that is superfluous. Meanwhile there are families that think they need at least 2500 square feet or more.

I think that by mastering frugality first, you learn to avoid lifestyle inflation when your earning power finally does increase.

For instance there was some family on the Susie Orman show that was making $8,000 a month and managing to spend $10,000 each month. All I could think is “How in the world do you throw out that much money every month?”

Agreed.
Earning more comes with lifestyle inflation, higher taxes, often more stress and less free time, etc. Paying for everything with money makes you dependent and lazy… usually.

Saving more strengthens your frugal muscles, budgeting, planning, cooking skill, creativity (to cook, plan inexpensive entertainment, save more). You often net passive health gains to from gardening or bicycling more to save money, working on your own home teaches you skills. I know how to build and maintain computers which makes my computer hobbies much less expensive!

I’ve always thought about retiring to Panama like Frank in Thailand 😉 Man do I love Colorado, though.

Its always a challenging question. I think the truth is that learning to live below your means and saving will never hurt you. If you can make more money that’s good but not so much if you just adjust your coat of living.

I’m with you. I’m all about flexing those frugal muscles. I didn’t think it was even possible to get by without a car down in Sarasota, Florida. Then I did it and got around just fine. You really don’t know what’s possible until you do it. And then you realize that you don’t need as much money as you thought you did.

Money does indeed make you lazy, and that’s simply because it allows you to buy yourself out of just about any situation you don’t like. It also allows you to circumvent building skills and knowledge, which can be to your detriment in some cases.

I’ve never been to Colorado, but I hear it’s really nice out there. I’ll have to make due with Michigan for the time being. 🙂

Definitely. Making more money is wonderful, but if you can’t control your spending then more money will never build you more wealth. This is why lottery winners end up broke a lot of times. More income isn’t a panacea for no wealth.

Good stuff! Saving is definitely better because it will continue to produce year after year. I mean, would you really cut expenses $10K then just increase them by the same amount next year? No!

Like you, I could probably get by on a very limited budget, but having a family does increase your costs – and reduces your options somewhat. Spending really has little appeal to me, just gives me more stuff to maintain, organize and worry about.

Even if you don’t want to go full trottle it amazes me what you can cut with hardly any sacrifice, such as
-Get movies at RedBox for $1.19 versus a movie theatre.
-Order water at restaurants.
-Take your unfinished food home for later.
-Credit card rebates/points
-Dont buy an expensive car! Or EVER finance a car
-Drink your alchohol at home(plus your safer!)
-Box Wine
and on and on.

And I do most of those things. I would say the one item I am guilty of is not ordering water at restaurants. For some reason I hate drinking water. So I generally order a Pepsi or a Coke and contribute to the bottom line.

And I rarely drink. In fact, I probably drink alcoholic beverages like once a year. So that saves a lot right there.

But I am big on Redbox. Great service. And I heartily recommend the credit card rebates. I just got $50 back in cash last month. Hallelujah! 🙂

I suppose you can try to save more at any income level, but not everyone has the ability (or willingness) to work harder and get creative to earn more… even though I do believe that you can make it in the US if you are willing to make changes.

Fortunately, I do see strong opportunities in my career to increase my earnings, but even doubling or tripling my income won’t make a difference if I spend my way into debt. Like others mentioned, a lot of lottery winners end up bankrupt because they have no idea how to manage that kind of money and their spending gets out of control.

It’s incredible to think that even a mid-level lottery prize winning of $10million could net someone $250k/yr in earnings by just investing in the S&P index, and at a 15-20% flat tax rate might I add… 🙂

Hopefully, despite the differences in incomes, we can all find a way to find some financial stability whether that means early retirement, or just a little breathing room. At the end of the day, happiness means different things to different people, and financial independence is all about taking financial concerns out of the list of daily concerns.

I’m with you. It’s really all about happiness. And one way to really improve one’s happiness and overall well-being is to eliminate most of one’s financial worries. That doesn’t even have to be financial independence or the pursuit of it, but creating a pretty decent gap between income and expenses is probably pretty vital to that end.

Now, that gap can be created via more income, less expenses, or a combination of the two. I just find that without controlling expenses first, any additional income will likely be spent. One has to have some financial discipline. And discipline is created out of saving more, not earning more.

But eliminating financial concerns is what this is all about. Once you no longer really have to worry about money, it opens up a whole new world. 🙂

Thanks Jason! Great article. I was in a job that came w a great house, utilities, car, staff, etc in Paris 2009-2013. It was so easy to save. I saved 80-85 % of my take home and in addition Maxed out 401K. And still, I had an opulent lifestyle. Now back in states I clear 100k, but DC rents are so sky high (mine is 3275 for a 1940’s three bedroom house in Chevy Chase)it is a battle to save 50 percent. We eat super cheap, never go out, never take vacations. Your article gives me motivation to keep it up. I’d like to be free of conventional job by 50 — ONLY years to go! My DGI portfolio yields about 20 k per year. But I should also qualify for a pension a t 50. Some days I feel lie u did at the dealership.

I agree with the idea that saving a large portion of your income is important, but I don’t think quantifying it in percentages is always the best way to look at things. For example, I would rather save 40% of 100k than 50% of 40k even though I would be able to retire sooner. Being frugal is more important for people with very low incomes because their options are very limited. Earning more and the subsequent lifestyle inflation is not bad in itself… it is bad when you overspend and don’t save. Even if I could retire in 15 years on 20k/year in passive income would I truly be happy? Inevitably, I would have missed out on a lot of life experiences… because unfortunately… some things in life (no matter how frugal you are) cannot be obtained without spending money. I don’t want to have worked my butt off for 15 years and realize I’ve missed out on things like travel, or going out with friends/family, or going out to concerts/shows, or trying new types of cuisines because I was too frugal. Living like a monk doesn’t sound appealing to me, and postponing joy isn’t always the best option because you never know when you’re going to die. The only truth is that every day that passes, you are one day closer to your end and you become more likely to get an illness/disease even if you have a healthy lifestyle. Experiencing things in your 20s, 30s, 40s, and 50s are all different. You don’t want to wake up at 45 and realize you’ve done nothing fun even though now you have 20k in passive income. 20k/year may be enough for some people, but it certainly limits your options. Money is worth nothing at the end of our lives, it’s just a tool we use to gain life experiences. Extreme frugality puts you at a major risk of having your world shrink and you start to miss out on a lot of things. A lot of the time you don’t realize you missed out on these things until you look back and reminisce. I think that you have to live life with no regrets. I’m not saying to blow all your money and never save anything… I’m not saying to spend all your money to buy things to impress people that you don’t even care about… I’m saying the opposite. You have to have a balance in your life… spend a little, save a little more, be frugal when you need to be, but be generous when you can. You don’t want to be so focused on a retirement date that you miss out on the great joys of life during the 15 years it took you to get there. Living life with no regrets means that when you look back you don’t have regrets about not doing things when you were younger, but it also means you don’t want to regret not doing things now… And finally, you don’t want the future you to regret not saving enough for the future you. Balance is good.

I feel bad for you if you feel like I did back at the dealership. That wasn’t fun. I maximized my opportunities there, made good money, and worked hard. But I definitely didn’t enjoy it. I’m much happier now making significantly less money.

Sounds like you’ve done a great job, though. Saving over 80% of your income is still a feat I have yet to accomplish. I know firsthand how difficult that is, so my hat’s off to you! 🙂

First, frugality isn’t miserable. I think you’re somehow assuming that money spent = happiness, as in the more money you spend, the happier you’ll likely be. And that’s simply not the case, as study after study proves. I’m not saying you should live like a hermit either, however. But I do have fun. I simply don’t go wild and crazy every weekend and light the town up. I happen to enjoy quiet and/or free activities for the most part, regardless of money. I like writing, reading, going for a nice walk, festivals, watching movies, exercising, spending time with loved ones. Many things don’t cost money. But some do. For instance, I spent $50 on ticket to a July 4th Tigers game. It was a great game with fireworks at the end. I’m not saying don’t spend money. Rather, I’m saying value your purchases appropriately.

Second, I can see the benefits of saving 40% of $100k over saving 50% of $40k. But we’re not talking apples to apples, are we? It’s not like your local McJob is paying $100k/year. Typically, you’re either working your ass off for that money, or you worked your ass off for many years to get in the position of making that kind of money. Where I’m from that’s some pretty serious income. It’s not like you wake up and say “I’m tired of only making $40k. I want to make $100k from now on.”

Furthermore, I’m now making much less money going forward focusing on writing full-time over what I was making at the car dealership. And I don’t regret my decision for even one second. I’d much rather enjoy my time than spend it making more to somehow “enjoy life”, even though I’m spending all of my time at work. How can you really enjoy life when you’re working all of the time to make that $100k? I just don’t get it. All work and no play makes Jason a dull boy.

And that’s really the crux of it. It’s about time versus money. There’s a balance there, just like income vs. expenses. But I’d certainly prefer tilting it toward time. You sound like you’d rather tilt it toward money, which is fine. There’s no right or wrong way to live as long as you’re happy.

Great points, and turns out, completely relevant to where I am now on my path to FI!

I recently quit my primary job (just a bit before you left yours, actually) because of an increasingly unbearable boss, and boy was I glad I was already living conservatively. Otherwise, I think I would’ve gone into shock trying to adjust to a lower standard of living.

Those frugal muscles will always be there as long as they’re used, and I’d rather depend on those than on something that can be as ephemeral as a job.

Not going to lie, though – I wouldn’t mind a job that pays a $100,000+ salary. I can already see the compounding effects of contributing $1000/month to my portfolio. Imagine how much more quickly that snowball would grow if I could put in 5x that amount a month! Well, one can dream, eh?

I don’t know how many times I heard the “a penny saved…” saying while growing up but never truly understood how wise that phrase was. I keep working at frugality but having a family makes it very challenging. I hope to instill these principles in my children so they do better than I did as a young adult.

Nice and inspirational post. I’ve always thought earning more is more effective than saving because there is no limit on how much you can earn, but being able to live on less is so essential to a comfortable retirement. To touch on your point on if you would rather save $10,000 or make $10,000, another plus for saving is taxes! That 10K earned does not mean 10K in your account after taxes. But 10K saved gives you 10K do what you would like. Will be bookmarking this one!

Sounds like you and I have both experienced very exciting changes in our lives recently. Change is good, and so is excitement. And it’s great you prepared for this move by living frugally and seeing exactly what you were capable of. That gives you so much flexibility and control. Awesome! 🙂

What are your plans next? A different job? Or some kind of self-employment?

I’m with you on the income side. I’d much rather be putting $5,000 or so to work in the market every month. That would allow my snowball to build into quite a monster pretty quickly. But what kind of job pays that much? What are the responsibilities? What kind of boss do you have? What are the hours? Basically, what are the sacrifices? I look at that side of the equation, and not just the income. I think people are prone to get excited by seeing those numbers when getting a big job offer, and rightfully so. But they don’t think of all the downside, and then find themselves miserable even with the big income. And then that’s what leads them to the path to financial independence. At least, that’s what happened to me.

Good luck with the blog and your journey. Looks like you’ve already got a pretty nice portfolio put together for someone your age.

That’s a great opportunity you have right there. I can imagine having a family challenges certain frugality measures, but it’s also an opportunity. And certainly instilling some of these principles into your children is just a fantastic opportunity. 🙂

Well, theoretically there is no limit to what you can earn. But I would suspect there really are limits to this, depending on your qualifications and industry. Of course, I also believe in the power of optimism. But until you start collecting that $200,000/year income, I would suggest learning how to comfortably live frugally first. 🙂

And taxes are a good point. I purposely left out taxes for the sake of simplicity, and because taxes vary from person to person and country to country. So you’ll see the numbers I used above are “net” of taxes. That makes it an apple-to-apple comparison. But if you’re looking at gross numbers, then saving definitely wins out, because every pre-tax dollar on the income side does not have the same value as one dollar saved.

If the goal is to simply reach FI then the total income doesn’t matter the only thing that matters is the percentage saved. The reason I used the large income disparity in the example was to highlight the fact that the person who saved 50% of a smaller income was able to reach FI in less years than a person earning 100k but saving only 40%. But the truth is, the percentage you save doesn’t mean much. You can reach FI earlier on a very low income if you save a large percentage because your cost of living has gone down so much (but so does quality of life). I could live on the street and save 100% of my income, but will I be happy? In that case I could have financial freedom tomorrow. Warren Buffet could save 1% of his income/investments and give 99% away and live way better than you or me.

Its true that money buys time, but what good is time if you can’t afford to do anything with it? I like things like reading, surfing the web, hanging out with friends/family, and running. These things are all free/cheap… but I don’t like the idea of fast forwarding my life to a point where I’m 15 years older before I can start to enjoy things like traveling across the world. Do you have a big pile of money at the end of your goal, that generates 20-25k a year but feel like you missed out on some things? What if we went back and compared apples to apples… you earned 40k instead of the 100k but worked 16 years instead of 15. With an extra year you will have 20-30 k to spend on things you want to do.

I’m not so shallow to think ALL things of value require money to be obtained, but I am saying some things of value do. I’m not saying to live like a baller and hit up the town every weekend. I’m not talking about buying a 4000 sqft house, a boat, and a new corvette and new toys that require $$$ to maintain. I am saying… do not postpone ALL the things you want to do, but feel like you can’t afford right now, in hopes that you will be able to do them later. You might not get the chance. A few of my traveling dreams are to climb mount Kilimanjaro, or see the great wall in China, or the pyramids in Egypt, all these things require money and I definitely wouldn’t be able to do them all in one year. It would still require budgeting and planning, but inevitably it will cost thousands of dollars. When you develop the mindset of someone who is extremely frugal you feel so guilty about doing anything that requires money that it becomes difficult to enjoy it because all you are thinking about is the $$$ leaving your pocket. You become like an anorexic that is always counting calories. Slowly you convince yourself that you are happy doing nothing, until one day you wake up 15 years later and realize that you could have seen/done more. I am agreeing that the free things are ultimately the best and should occupy most of your time, but some things that you are passionate about cost money and you should plan/budget to do them if you want to, as it will enrich your life. Frugal people say their passion is saving money, but ironically they become slaves to money because they can’t even let go of a dollar without feeling upset.

Most people in this world need a reality check and a good kick in the ass to save more money and spend less. But the people who are attracted to your blog probably need to do the opposite!

Personally, I think I’d be more inclined to put up with a bad boss and stressful, long hours if I got paid 6 figures. The sacrifice, for me, would be worth it, as I would be able to reach FI even more quickly. You bring up some really good questions for me to mull over, though.

Oh boy, I’m totally going for self-employment! Right now, my sole source of income is from a few (but growing number!) of personal students of mine. The income is now enough to cover all of my current expenses, but not much more than that.

I really have you to thank for my success so far in living frugally. Half a year ago, I was saving 20-30% a month and patting myself on the back until I stumbled upon this blog. Your budgets put mine to shame! – but also inspired me to find new ways to cut even more of the fat.

“Warren Buffet could save 1% of his income/investments and give 99% away and live way better than you or me.”

That’s pretty much what he’s doing. Have you followed his philanthropic activities?

I’m not saying to live without balance, or to postpone everything either. But you and I have a different mindset, I believe. I could inherit $100 million tomorrow and I simply wouldn’t radically change my life. I wouldn’t own a big house, or a Ferrari, or go out and about a lot. I’d live largely the way I do now. So frugality is really a mindset, my friend. Not a sacrifice. It’s a way of life, and a great one at that.

The key is balance, which you and others mention. However, I have to disagree with your math and primary assertion. The issue is that your amount of savings is bounded. You can only save so much in absolute dollars – basically to the threshold of your ‘quality of living’ level. That might be relatively low for some (like you), it might be higher, by necessity, if you have a family, or it could be higher by choice. The bottom line though is that there is a floor. On the income side however, there is no ceiling. Whether it’s based on a natural career advancement, professional success, or adding a side business (like yourself) most people can find ways to increase income over time, and in many cases by substantially more than the constrained amount they can save (I’m not saying don’t save – but it’s only part of the equation). The other issue I’d point out is that your floor can change – especially for those of a relatively young age. You’ve approached this as a singled person. What if family circumstances change,….what if there’s a perfect match and then some little DMs appearing on the stage?…..

Savings great, agree 100% – live within your means, don’t go crazy keeping up with the Jones’s,…. But the number you have the most influence over and the one that has the greatest leverage is income. Turn your $40k into 140k and your path to FI (regardless of the possible bumps along the way) become a lot easier.

Actually, you’re incorrect. I’ve lived this lifestyle both by myself as I am now, and with a partner and her child. So both as a family and alone. And it really didn’t change anything.

As far as “turn your $40k into $140k”…if you know of anyone that’s hiring right now that will pay me $140k/year you be sure to let me know.

All sarcasm aside, the primary focus should be first on savings. Then, if you can increase your income dramatically then that’s wonderful, and will certainly speed things along. But I was pointing out in the article that if YOU ONLY HAD TO CHOOSE ONE SIDE you should choose savings. I think you’re completely misinterpreting the article, or you didn’t read it. I didn’t say you shouldn’t try to both, or try to dramatically increase your income if possible once you’ve mastered savings.

However, I find these comments insinuating you can just roll out and make $100k/year with no problem while the national unemployment rate is high and people are struggling to move out of their parents’ house comical. If you’re currently making $40k/year in your career you don’t just increase that to $140k. At least, not from my experience or anyone else that I’ve ever met. I busted my butt for years and increased my income pretty dramatically, but not like this. And I also built a business on the side. And I still found myself nowhere near six figures.

But the good news is that six figures isn’t even necessary to retire by 40 years old. In my opinion, that’s where the focus should lie.

“But the number you have the most influence over and the one that has the greatest leverage is income.”

Ask the millions of people who were laid off during the latest economic crisis how much influence they felt over their income. I’ve worked many real middle-class jobs in my lifetime, and I was never in complete control over my income. If someone out there could do my job better or for less money I was out. And even in my last position, which was commission based with a supposed lack of income ceiling due to the structure of sales, resulted in loss of income as they simply added another salesman to the force. Management may tell you there’s no ceiling, until your head is hitting it.

Yeah I am familiar with some of Warren Buffet’s views on philanthropy. When I first heard he was going to give away most his wealth to charity, I thought it was crazy… The older I get the more I realize it’s not. I like his quote where he says something like… he’ll give his children enough so that they can do anything, but not so much that they want to do nothing.

I understand that frugality has allowed you to make major and drastic changes in your life and admire you for your boldness. I understand that without being extremely frugal you wouldn’t be in a position to quit your day job and take control of your life so quickly. Your story is very inspirational! I can’t say I’d always be able to make all the same choices as you, but I can generally respect your rationale for why you make them. Thanks again for the response!

I also like that quote/perspective quite a bit. I’m not sure if his children do or not, but they all seem like pretty successful people already from what I know of them. I just think Buffett is such an interesting and unique person.

Appreciate the kind words there. I’ll admit I’m biased toward frugality because it afforded me the opportunities to do what I’m doing now. I can certainly also see the merit of making a lot of money, but I’ve found more people successful at building real wealth from saving than from making a lot of money. That’s just my personal experience. But making great money can speed things along quite nicely if you’ve already laid the groundwork of living below your means and dropping excess capital to the bottom line. I just believe it’s easier said than done to go out and make six figures, and not necessary anyway. But if you have the opportunity to do so, take it!

When I was younger, I definitely would have thought earning more was better because what I earned, I spent…and then spent some more! I was in a lot of debt (credit cards) after I graduated and this continued throughout my 30s. I only finally cleared it when I turned 40.

For a couple of years, I thought I was doing great, not getting into further debt but I had hardly any savings. I started saving last year and thought I did well with a savings rate of around 17% until I came across blogs talking about much higher savings rates and that FI/early retirement was possible for ‘normal’ folk and not just lottery winners!

Last month, I was able to save 50% of my net salary which is my target average for this year. Looking at my expenses, I reckon I could probably save more but I don’t want to sacrifice things that I consider important in my life, such as holidays abroad, hobbies and social outings with my friends.

I’m glad you’ve seen the light and changed things around for yourself. That’s so awesome. And saving 50% of your income puts you in a great spot, as you can see in the post.

You definitely don’t have to win the lottery to become financially independent. Simply being conscientious about your spending and valuing your purchases appropriately makes a huge difference. Saving half of your net salary puts you on a great path.

But it’s definitely about balance. I could save more than I do now, but I enjoy social outings as well. Eating out at great restaurants occasionally is still a habit I keep around because I love good food, and I love the experience. But because I indulge occasionally these experiences stay special.

We saved massively early on, but once the house was paid off, safety net put back and $30k in annual dividends was reached, we are now starting to spend more than we previously have. New wood floors, sunroom and a nice vacation last summer. Still saving 35% this year and investing it. Will get back on the 50% or greater saving train next year. NET: when you reach great saving, debt pay off and/or dividend milestones, it is fine to spoil yourself a little along the way.

Completely agree. If you feel the pain of frugality then it’s time to either cut some slack or treat yourself. And once you get to a great spot in life you’ll likely be able to let way off the throttle, enjoy pretty much whatever you want, and STILL save/invest money at a rather prodigious rate. That’s a wonderful spot to be in. You guys have already built the snowball, and now it’s rolling downhill all by itself. You don’t have to push so hard anymore, so you can redirect that energy and focus elsewhere. Great job, and it sounds like you earned it! 🙂

If you can save as much as you can, while also trying to increase your income, you can retire pretty early. Unfortunately, most people fail at the living within their means part. As they earn more, they end up spending more, and never really manage to get out of the rat race.

I think I need to focus on both. Living super frugal was easy when I was single. Nothing like a can of baked beans for dinner in my opinion. Now trying to get my wife and kids to follow that as well has proved difficult over the years. It has always been a compromise so I try to maximize my earnings to offset the “wants” I give my family.

If you can maximize both, that’s definitely the way to go. But I think the foundation has to be set with smart money management. Then that large income can drop straight to your bottom line, putting you on the fast track for financial independence. 🙂

But there are always compromises and balances. And there’s nothing wrong with that. I would never want to reach FI if it meant I had to be miserable all the way there.

I agree. Saving can get you ahead. I think sometimes super savers shock people because people think the super savers are depriving themselves and their family. In many peoples heads frugality & living within your means = deprivation. I definitely think saving is underrated because I’ve read so many stories of celebrities and lottery winners going broke.

I also think saving is relative to your situation. Awhile back actress Zooey Deschanel got divorced and when she filed her divorce papers she had to reveal her income and spending. Reporters got a hold of these papers and found out that given how much she makes she is frugal. Yes she spends more than the average person walking down the street, but given her income and that she saves, invests, doesn’t have any debt and still gives to charity, she lives within her means.

I actually read about Zooey a while back. Really impressive. I mean she still lives a pretty nice life there, but still far below her means. Really fantastic. I referenced a story about Keira Knightley a while back that kind of shows the same behavior. I guess some people get it and some don’t.

I liken your saving more vs earning more debate to the diet debate….eat less, exercise more mantra. It is easier to cut calories from your diet than it is to exercise more to cut the calories (but you already knew that as you have lost weight).

And thanks for the math lesson in this saving vs earnings debate. Math always puts things in plain black and white.

Totally agree. I wrote a post a while back about how saving money is a lot like losing weight. And those parallels are true with your example as well. I think most people would agree that avoiding a cheeseburger is easier than working out for an hour. Similarly, I think it’s easier to cut $500 than it is to go out and earn an extra $500. One requires appreciating what is already there, while the other likely requires more time. And time is all we have.

super article! I joined the ‘Financial Independence and frugality movement’ from over here in Holland, where there is nothing comparable going on. So I started blogging about it and hope to shake things up a bit here! This post has encouraged me to look at our expenses once again. Thank you so much!

Very happy to have found your site! I wanted to let you know that a frugal lifestyle really can pay off. I am a 53 year old single woman from an average middle class background (read: no trust fund!) who decided in my 20’s there was no way I could survive in the corporate rat race, sitting in traffic every day to spend 8-10 hours under fluorescent lights, begging for a few weeks off per year, enduring horrific, back-biting office politics and jockeying for position to try to get that promotion – for what? So that I could have a beautiful house, with high-end furnishings and drive a “nice” car and wear designer clothes? But be miserable in the process, have no time for myself, be “owned” by the job, and then drop dead from the stress? No thanks. To me, it would definitely have been “death by cubicle”. That said, I was lucky to choose a profession that allowed me a reasonable amount of flexibility, I also wanted to pursue my musical “hobby” , and I found two long term “contract” type jobs in my early 30’s, and became self-employed in the process. I still have those jobs that I still have – but I want to retire completely.

Just recently I became a millionaire. Yep, I crossed that mark and my net worth is just about $1,000,000. And I have never earned in the six figures in a year (although one year I came close….)

I would say I mostly did it by living beneath my means. I could have bought nicer cars but I chose to drive old cars and drive them into the ground. I could have eaten out more, and ordered the most expensive thing on the menu, and bought clothes or whatever I wanted at full price but I chose NOT to do that. I did not spend $4.00 a day on that “latte” because I just had to have it. I drank coffee at home, not from Starbucks or Dunkin’ Donuts. I rent a small apartment, very small). Yes, it has been difficult at times because advertising has led us to believe we should live a “certain” way, we and our homes should look a certain way, and keeping up with the Joneses is a strong social force. When you decide you’re not going to play that game, you come up against critique and condescension from your peers (“how long are you going to live in that apartment?” “Why don’t you get a new car?” “Don’t you think it’s time you bought a house?” “just spend the money, you only live once!”). And sometimes you will be accused of being “cheap” rather than “frugal”. Sigh.

Yet in my 21 years of self employment I’ve taken at least a month or more off each year, I make my own schedule, I’ve traveled overseas several times, and taken some other nice vacations. This year I am hoping to take two months off.

Unfortunately I think I would be worth MUCH more had I the fortitude to invest in stocks like you did. I know I missed out on the last bull market that is still going, and gheesh, I’d probably be worth 5 million if I had more guts and wasn’t so fearful and lazy about investing. I hate to admit that a lot of my wealth is sitting in cash because I am afraid to lose it! (remember the 2008 crash?) Since I remember the interest rates of the 80’s, my plan then was to try to live off the interest of my savings. And today this historically super low interest rate environment that may be with us for a long time is troubling.

So now, encouraged by your site, I may have to do some work and invest in some individual stocks. I have mutual funds in my retirement plan and I know that fees just eat away at your earnings, so I’m now only investing in index funds. Yet I’ve stopped doing even that as the market seems so high and I’d be buying high. That fear thing again…

The thing that worries me, and why I think I need at least 2 million to retire, is the cost of health care.

Anyway, I’m going to get back and read more of your blog! Thank you, and great work.

Sounds like you’ve done incredibly well for yourself. What’s amazing to me is that you did this years ago, before there was so much information on the subject on the internet. It’s comparatively easy for someone like myself, as I wrote about not long ago. Even though I’m a trailblazer in many respects, I still had a lot of information already in front of me which helped me formulate my own ideas about life, finances, money, time, and investing.

Big congrats on the milestone. Again, that’s really amazing that you were able to save up so much in cash, without the power of compounding behind you. I’m confident, as are you, that you’d have far more if you had invested that cash regularly as it made sense for you and your risk tolerance, but that’s really neither here nor there. But I do hope you find some information/inspiration that helps you formulate ideas/strategies that work for you. 🙂

Thanks again for sharing. Hope you find a lot of the articles useful. There are something like 600+ articles on the site now, many of which discuss avoiding a similar “death by cubicle” fate.

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